GNB+13e+Questions+Ch+8

GNB+13e+Questions+Ch+8 - A ctivity-Based Costing: A Tool to...

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345 I Activity-Based Costing: A Tool to Aid Decision Making connect- Problems PROBLEM 8-16 Comparing Traditional and Activity-Based Product Margins [LOl, L03, L04, L05] Smoky Mountain Corporation makes two types of hiking boots-Xtreme and the Pathfinder. Data concerning these two product lines appear below: Selling price per unit . $140.00 $99.00 Direct materials per unit . $72.00 $53.00 Direct labor per unit. . $24.00 $12.00 Direct labor-hours per unit. . 2.0 DLHs 1.0 DLHs Estimated annual production . 20,000 units 80,000 units The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below: Estimated total manufacturing overhead . $1,980,000 Estimated total direct labor-hours . 120,000 DLHs . equired: l Using Exhibit 8-12 as a guide, compute the product margins for the Xtreme and the Path- finder products under the company's traditional costing system. The company is considering replacing its traditional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools (the Other cost pool includes organization-sustaining costs and idle capacity costs): Supporting direct labor (direct labor-hours) . . 783,600 Batch setups (setups) . 495,000 Product sustaining (number of products) . 602,400 Other . 99,000 Total manUfacturing overhead cost . $1,980,000 Using Exhibit 8-10 as a guide, compute the product margins for the Xtreme and the Path- finder products under the activity-based costing system. Using Exhibit 8-13 as a guide, prepare a quantitative comparison of the traditional and activity-based cost assignments. Explain why the traditional and activity-based cost as- signments differ. PROBLEM 8-17 Evaluating the Profitability of Services [L02, L03, L04, L05] Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $28 per hundred square feet. However, there is some question about whether the company is actually making any money on jobs for some customers-particularly those located on remote ranches that require considerable travel time. The owner's daughter, home eXcel for the summer from college, has suggested investigating this question using activity-based
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346 Chapter 8 costing. After some discussion, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pools and their activity measures appear below: ~n ..•. . ~L!J 20,000 hundred square feet Travel to jobs . Miles driven 60,000 miles Job support . Number of jobs
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This note was uploaded on 02/10/2011 for the course UGBA 102B taught by Professor Fan during the Spring '08 term at Berkeley.

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GNB+13e+Questions+Ch+8 - A ctivity-Based Costing: A Tool to...

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